14 Best Ways to Avoid Financial Fraud (Updated)

There are many forms of financial fraud that you should keep a look out for. Common financial fraud involves writing phony checks. And other forms involve complex types of financial fraudulent activities. And still others feature investment fraud. Whichever type of fraud hits you, it can turn your finances upside down. But with enough foresight and knowledge, you can prevent yourself from being the victim of financial crooks.

To reduce your chances of financial fraud, keep these simple tips in mind:

#1 Watch and Verify All Investments

Many people have stockbrokers or investment advisors. It is important to verify all of your investment holdings yourself. Do not just rely on the financial statements you get your from your financial advisor. The reason that Bernie Madoff got away with billions of fraud in his Ponzi scheme was that he had intricate, fake statements that he sent to clients each quarter.

Action:

Invest your funds in large mutual funds or companies, and carefully review their quarterly or annual performance reports yourself without relying on your investment advisor.

#2 Watch Out for Investments That Always Have High Returns

One of the common features of a Ponzi scheme is that you always get very high returns no matter what the market is doing. For example, if you are always getting 20% returns no matter if the market is soaring or crashing, there could be something strange going on. There are some real financial investments that offer decent returns steadily with low risk, including some annuities, but most of these products come from large, well-known companies. Bernie Madoff’s returns always were high even in bear markets, which caused some people to suspect something fishy was going on.

Action:

If your investment shows constant high returns even in major market downturns, ask an independent investment expert or auditor to review your quarterly reports and the financials of the companies in which you are invested.

#3 Guard Your PIN Carefully

Always ensure that no one knows your PIN number when you are doing anything in public. Never tell anyone what your PIN is, and never send it on the Internet or in email. Keep in mind that no bank or police officer will ever ask you for your PIN. It is also good to use a pin today that is at least six digits.

Action:

Memorize your PIN and do not keep record of it anywhere. It also is a wise move to change your PIN every few months. Never use a simple PIN such as your birthday or your home address.

#4 Safeguard Your PC

Many types of financial fraud involve stealing personal information on PCs. Any PC in your home or office should be protected with the best antivirus software. Make sure it is paid for and up to date at all times. (Eznomics.com).

Action:

Install the latest version of McAfee AntiVirus Plus or Symantec Norton AntiVirus. These are among the best and most popular antivirus programs on the market.

#5 Don’t Write Checks

Some people still write checks to pay bills and buy groceries, but note that a check contains all of your personal information, including your bank information and account number. A criminal can use that information to take money out of your bank account.

Action:

If you insist upon writing checks, do not carry your checkbook around with you. It actually is less of a risk to use a debit or credit card for payments at grocery stores, etc. You can always contest any suspicious charges with the bank or credit card company.

#6 Avoid Putting Checks in the Mail

Some elderly people still insist upon paying for the mortgage and utilities with checks. If you do this, at least do not put it in your mailbox and put up the red flag. That is a sign to criminals to steal your check and get your identity.

Action:

If you want to continue to write checks to pay your bills, take your letters to a central mailbox in your neighborhood, or go to the post office. Also, wrap the check up in a piece of paper so it is not obviously a check.

#7 Only Give Money to Well Known Organizations

Fraud naturally explodes after a natural disaster, such as an earthquake, hurricane or tornado. Be sure you only give to the most well known organizations, such as the Red Cross or Salvation Army.

Action:

If you are giving money to a lesser-known charity, check on their website to see how much money is actually given to the charity, and how much goes for overhead and salaries. If you cannot find this information, you should consider giving to another charity.

#8 Use Caution If You Wire Money

Wiring money is sending cash directly from your bank account, so be cautious. Many criminals use bank wires for transactions because it is very difficult to reverse the money wire. They also are very difficult to trace. Always check that you are working with a real organization if you are wiring money. A lot of financial crooks use Craigslist or other shady Internet websites and tell you to send money by wire to purchase a product or service. This is almost always a scam.

Action:

Do not wire funds to a business or individual you do not know personally.

#9 Question Buying Any Healthcare Products

Ask about any scientific research that backs claims about the effectiveness of the claims of a healthcare product you may purchase. Also, you should only purchase prescription drugs from licensed US pharmacies. There are many illegal, counterfeit drug products made outside the US that are adulterated, fake and dangerous.

Action:

Do not order prescription drugs from overseas without a prescription. You do not know if the drugs you are receiving are the real thing.

#10 Never Answer Emails Wanting Your Personal Information

No legitimate company ever asks for your social security number in an email. Nor will they ask for your PIN and bank account details. This information would only be gathered on a secure website. The URL for such a site should be one that is well known, such as www.paypal.com or www.amazon.com. If you don’t know the site, it is probably a scam.

Action:

Hover your cursor over the URL of the website. If it looks unusual and is something you never have heard of, it is wise to not even click it.

#11 Use Difficult Passwords

The days are over when you can use 12345 as your password. Hackers can easily crack passwords that are simple number combinations or the name of your pet. Create a password that is at least eight characters long and has upper and lower case letters, numbers and symbols. (Investopedia).

Action:

To keep track of your passwords, use a product such as Zoho Vault, Keeper Password Manager or LastPass.

#12 Do Not Download Any Software From a Pop Up Window

Watch out for pop up windows that say your computer is vulnerable to viruses. If you click on it, malware is probably being loaded onto your computer.

Action:

Only download software programs from companies you know and have a solid, well-known presence on the Internet.

#11 Never Respond to Foreign Lottery Scams

This is an old fraud but it continues to rob money from people every year. Emails claim that you won a lottery overseas that you never entered. You are told you must pay taxes etc to collect. If you wire money, it is a fraud.

Action:

Immediately delete any email about international lottery winnings. Do not click on any links in these emails, either.

#12 Never Respond to Phony IRS Calls for Money

A common scam today is fake calls from ‘IRS officials’ who claim you owe a lot in back taxes and law enforcement is en route to arrest you. You are instructed to call the number and arrange payment. This is always a scam. The IRS never contacts taxpayers in this manner. Virtually all of their correspondence about taxes owed comes through the US mail. If you are ever contacted by someone who claims to be from the IRS, ask for their name, department, supervisor, employee ID etc. Almost all of these calls from the ‘IRS’ are scams. (USNews.com).

#13 Check for Independent Audits

Before you decide to invest with a small investment firm or business, find out when independent audits are performed and who does them. Before you invest in any company, be sure there have been audited financial statements by one of the Big Four Accounting Firms. Bernie Madoff’s funds were audited, but it was done by a small auditing firm that Madoff controlled and no one heard of before.

Action:

If you are investing in a small company, look for losses behind the growth. Just because a company is growing does not mean you will see an investment gain.

#14 Never Let Embarrassment Prevent You From Reporting Fraud

It is not unusual for investors suspicious of fraud being done hesitate because they are embarrassed. Older investors may be afraid that they will be judged as unworthy of handling their investments, and may have to go into a nursing home. And experienced investors are loathe to admit they got suckered.

Action:

If you suspect financial fraud, submit a report to the Securities and Exchange Commission at 1-800-SEC-0330.

About the Author

Michael Bennett

Michael Bennett is Editor-in-Chief of Consumer Protect.com. Since 1999, he's worked across a multitude of areas of consumer protection including defective products, environmental issues, identity theft, predatory lending and more. If you find his articles helpful please share them with your readers.